$hiny $hackles

Sometimes the modern world seems so absurd that one can be tempted to think we’ve already reached some sort of apogee of ridiculousness (or nadir, depending on how you look at it). But fortunately (or unfortunately!), there seems to be no upper (or lower) limit to the heights (or depths) of stupidity that humans can attain.

Which is, of course, wonderful news for the blogosphere, and potentially its sine qua non.

For better or for worse I own and employ several Apple products, and for the most part they suit my needs well. In fact, I recently added to 1 Infinite Loop’s corporate coffers with their newest desktop product, the Retina iMac, which is a rather delightful product in its own right.

I won’t disclose my final purchase price, but since the base model’s price tag is easily discoverable, I will leave the reader to guess (and potentially gape) at the motivations behind such a purchase, which, to alleviate the aforementioned pondering, were both for its functionality as well as its shininess.

To wit, I’ve long needed a desktop upgrade, and having a shiny new 5K display doesn’t hurt.

Mmmmm, shiny.

In all seriousness though, it’s a fine product, and a purchase I have not (as of yet!) regretted. However, in stumbling through the bowels of Mac related news and commentary, I recently came across what has to be one of the most benighted credit card offers I have ever seen:

Ah, shiny rewards to go with your shiny new Apple product. What could be better? The offer as it stands go like this: for every $1 you finance at an Apple retail store or through iTunes (that’s right, you just financed that $1 song!) you receive 3 points, whatever that means. You also can get 2 points for $1 at restaurants (financing Taco Bell!) and 1 point for $1 everywhere else (financing packs of gum!).

The payoff is that once you, ahem, ‘earn’ 2500 points you get- wait for it!- a $25 Apple Store gift card.

Isn’t that so amazing!

Now, I have nothing against gift cards, but the rub here is that this particular reward is locked into specific purchases; that is, your ‘reward’ is not cash back but rather a gift card that can only be used towards specific things.

And while all ‘cash back’ offers are merely a rather transparent attempt to get you to purchase more and thus earn the credit card companies more money, this one is even more so since the reward is essentially a credit to purchase more at a particular store, which effectively costs Apple nothing.

Consider: If you only used this credit card to finance purchases from Apple, you would have to spend over $800 to get that $25 gift card reward. Seriously, $800+ for $25! That means that Apple is making over 32 times more on you than than what you stand to, ahem, ‘gain’ in rewards.

Of course they are going to give you $25 more to spend, since not only does it cost them nothing, but it almost guarantees that you will end up spending more than that $25 in the future.

After all, there isn’t much at the Apple Store that can be had for a mere $25.

And if you use this card on other purchases, the ‘reward’ is even worse, since you could potentially have to spend $2500 to get that $25 gift card.

But the gift card isn’t the only goodie the Barclaycard Visa with Apple Rewards has for you. You can get, ahem, ‘special’ financing on purchases made at Apple within the first 30 days of opening an account. It breaks down like this:

For purchases under $499, you get a 6 month interest deferred promo period

For purchases between $499 and $998, you get a 12 month interest deferred promo period

For purchases $999 and over, you get an 18 month interest deferred promo period

Since my recent purchase was well over $999, I would seem like the perfect candidate for this type of offer. After all, I could have financed the iMac, received the 18 month financing promo period, and also earned the $25 gift card. Amazing, right?

The really sad thing about this type of offer and this type of card is that it aims to promote impulse spending on large purchases. The small window for the special financing is intended to get you to pull the trigger on the larger purchases, since the 18 months promo period sounds like a long time. Surely you can pay off the balance within that time, right? And how could it hurt to get $25-ish for something you were going to buy anyway?

The catch, of course, is that this special financing will really come back to bite you if you don’t actually pay off the balance before the promo period ends. There are a few huge caveats that should make anyone run away screaming from this special financing.

Firstly, the promo period is not an interest free period but rather an interest deferred period. This entails that while you are not paying interest during the promotional period, it is nevertheless accruing under the radar. If you pay off the balance before the term ends all is fine and you can avoid the interest, but if for some reason you are unable to then the interest not only continues to accrue but is applied to your balance all at once.

Thus, all that interest that has been accruing is now immediately additional money that you owe. The 18 months sounds like a long time and can seemgood deal, but the other side is that it is a longer period in which interest can accrue. The catch is that since it is deferred it can feel like it is interest free, which can dull the motivation for paying off the balance in time.

The second catch is that the APR’s are rather outrageous, ranging from 13.99% to 26.99% variable rate depending on your credit worthiness. And as aforementioned, that interest rate is active from the moment you make the purchase, accruing behind the scenes and outstanding if you miss the payoff date. Is your new iPhone really worth potentially being on the line for a nearly 27% APR?

But there’s another catch. One might notice that while the interest is deferred, the payments are not. That is, you are expected to make timely monthly payments during this promotional period. The fine print states that if you are late with even 1 payment, you are billed all of the deferred interest that has accrued from the purchase date.

In other words, you could have the best of intentions, wanting to be responsible in making your monthly payments and avoiding the interest. But then you have a really bad month where everything goes wrong and you simply can’t make the payment, and all of a sudden you are now on the hook for all the deferred interest.

Gives a new meaning to special financing!

Of course, the silliest thing about this whole scenario is that the shiny products being financed are things that are always losing value, and losing it precipitously. Apple products hold their value fairly well as far as technology products go, but given the volatility of the field and the pace at which new products are released (Apple comes out with new versions of their products nearly every year!), it is very likely that one’s purchase will be rendered obsolete by a new model before the financing term even ends! That means you could still be paying on a product that is too outdated to recoup anything from in resale value.

One comment on the news item at MacRumors struck me as unintentionally hilarious:

I hear you on the mortgage analogy, but I never buy anything on a credit card that I can’t pay off at the end of the month (unless its 0% interest for whatever reason). That said, I am not signing up for this card. I use credit cards for their benefits rather than an actual line of credit (loan). (gotluck)

Which raises the question- if one already has the money to pay off the purchase at the end of the month, why even bother with the potential pitfall of the credit card at all? Is a pathetic $25 Apple Store card really worth the risk that financing entails?

Given that the entire premise of enticing you with a $25 gift card is that you will spend far more than you would have with cash, in nearly every scenario you will actually save far more than $25 that you can then give to Apple if you avoid credit cards altogether.

One final comment perfectly sums up the inanity of the entire credit card rewards scheme:

I hope my mom and dad get one of these. If they get enough points maybe I can move out of the basement. (AppleScruff1)